Worldwide Lessons from Financial Crises

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This is a presentation on Worldwide Financial Crisis made by Vinod Thomas, Director-General & Senior Vice President at the Independent Evaluation Group, World Bank. In the presentation, Mr. Thomas describes the reasons for the recent financial crisis, highlights the extent of damages, and discusses policy responses to the crisis.

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<ul><li><p>Worldwide Lessons from Financial Crises</p><p>Vinod Thomas, Director-General &amp; Senior Vice President Independent Evaluation Group, World Bank</p><p> China Center for Economic Research Peking University February 19, 2009</p></li><li><p>*Table of ContentsThe Crisis</p><p>Policy Responses</p><p>Outlook</p></li><li><p>*I. The CrisisThe sub-prime mortgage bubble in the US was the detonator of the current crisis</p><p>The extensive use of derivatives made the exposure to the mortgage crisis explosive</p><p>The chain reaction was globalized because of:The links among the financial sectors in OECD and emerging countriesThe high dependence of international trade on US demand</p></li><li><p>*The extent of damage so farDeepening recession since mid-2008 with multiple downwards revisions of growth </p><p>Contagion from the developed to emerging and less developed economies</p><p>Downward cycle through Trade and weakening demandCapital flowRemittanceCommodity price</p><p>Reinforcing expectation for global depression and deflation</p></li><li><p>*The sharpest global decline since 1970GDP Growth</p><p>Chart1</p><p>3.88957.35695.0182</p><p>3.66916.34984.5561</p><p>5.38955.8835.5531</p><p>6.33757.90316.8611</p><p>0.90456.2322.747</p><p>0.18724.5531.7379</p><p>4.9646.12085.3768</p><p>3.83535.20744.3286</p><p>4.36714.73224.4986</p><p>3.86293.58943.7648</p><p>0.95453.86482.016</p><p>1.79012.92492.2063</p><p>0.14092.15190.8866</p><p>2.89592.63872.8008</p><p>4.66444.4734.5938</p><p>3.68563.56593.6415</p><p>3.32133.76293.4842</p><p>3.5873.87353.6928</p><p>4.69994.14014.4942</p><p>3.95483.30163.7161</p><p>3.02842.7842.9395</p><p>1.41261.57911.4731</p><p>2.18671.76112.0333</p><p>1.40573.07662.0119</p><p>3.4333.29013.3814</p><p>2.83044.0413.2698</p><p>2.97035.06973.7414</p><p>3.48144.98684.039</p><p>2.56132.4952.5368</p><p>3.51913.54073.5271</p><p>3.95855.9454.7013</p><p>1.23883.76762.1983</p><p>1.61944.75022.8286</p><p>1.91446.23593.6254</p><p>3.19247.50624.9436</p><p>2.55777.10784.4471</p><p>2.96347.9125.0732</p><p>2.68078.31885.1535</p><p>0.99676.26563.373</p><p>-1.95493.30410.4863</p><p>Advanced economies</p><p>Emerging and developing economies</p><p>World</p><p>Percent change</p><p>WEO update Jan 09 Growth.xls</p><p>Figure 1. GDP Growth</p><p>(Percent change)</p><p>Advanced economiesEmerging and developing economiesWorld</p><p>19703.88957.35695.0182</p><p>19713.66916.34984.5561</p><p>19725.38955.8835.5531</p><p>19736.33757.90316.8611</p><p>19740.90456.2322.747</p><p>19750.18724.5531.7379</p><p>19764.9646.12085.3768</p><p>19773.83535.20744.3286</p><p>19784.36714.73224.4986</p><p>19793.86293.58943.7648</p><p>19800.95453.86482.016</p><p>19811.79012.92492.2063</p><p>19820.14092.15190.8866</p><p>19832.89592.63872.8008</p><p>19844.66444.4734.5938</p><p>19853.68563.56593.6415</p><p>19863.32133.76293.4842</p><p>19873.5873.87353.6928</p><p>19884.69994.14014.4942</p><p>19893.95483.30163.7161</p><p>19903.02842.7842.9395</p><p>19911.41261.57911.4731</p><p>19922.18671.76112.0333</p><p>19931.40573.07662.0119</p><p>19943.4333.29013.3814</p><p>19952.83044.0413.2698</p><p>19962.97035.06973.7414</p><p>19973.48144.98684.039</p><p>19982.56132.4952.5368</p><p>19993.51913.54073.5271</p><p>20003.95855.9454.7013</p><p>20011.23883.76762.1983</p><p>20021.61944.75022.8286</p><p>20031.91446.23593.6254</p><p>20043.19247.50624.9436</p><p>20052.55777.10784.4471</p><p>20062.96347.9125.0732</p><p>20072.68078.31885.1535</p><p>20080.99676.26563.373</p><p>2009-1.95493.30410.4863</p><p>20101.13425.01572.9789</p><p>WEO update Jan 09 Growth.xls</p><p>Advanced economies</p><p>Emerging and developing economies</p><p>World</p><p>Percent change</p></li><li><p>*Both OECD and emerging markets fall no decouplingSource: World Development Indicators 2008 and IMF World Economic Outlook Update, January 28, 2009 </p><p>Chart2</p><p>-0.9333333333-2</p><p>-0.3666666667-1</p><p>-0.76666666670</p><p>-0.13333333331</p><p>-0.51.5</p><p>0.23333333332</p><p>0.33333333333</p><p>1.23.5</p><p>0.84</p><p>3.674.25</p><p>0.755</p><p>-0.25.5</p><p>2.256</p><p>2.366.5</p><p>3.757</p><p>0.17.5</p><p>18</p><p>2.26666666679</p><p>6.310</p><p>7.912</p><p>Brazil</p><p>Chinal</p><p>India</p><p>Russia</p><p>Indonesia</p><p>Korea</p><p>Turkey</p><p>2000-2007</p><p>Average GDP growth, 2000-2007</p><p>Average GDP growth, 2008-2010</p><p>Chart3</p><p>0-2.5</p><p>-0.2-1</p><p>1.80</p><p>-1.21</p><p>6.71.5</p><p>-1.92</p><p>-2.53</p><p>5.13.5</p><p>3.54</p><p>-2.14.25</p><p>-2.65</p><p>-45.5</p><p>-0.36</p><p>-0.76.5</p><p>0.87</p><p>1.37.5</p><p>-1.78</p><p>-1.59</p><p>-1.610</p><p>-2.812</p><p>India</p><p>China</p><p>Indonesia</p><p>South Africa</p><p>Brazil</p><p>Saudi Arabia</p><p>Argentina</p><p>Russia</p><p>Turkey</p><p>Korea</p><p>Japan</p><p>USA</p><p>UK</p><p>Germany</p><p>Mexico</p><p>Spain</p><p>Italy</p><p>France</p><p>Canada</p><p>Australia</p><p>Average annual growth GDP, 2006-2007 (%)</p><p>Annual growth GDP, 2009 (%)</p><p>Sheet1</p><p>CountrySubject DescriptorUnitsScaleCountry/Series-specific Notes20002001200220032004200520062007200820092010Country2008-20102000-2007</p><p>1ArgentinaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).-0.789-4.409-10.8958.8379.039.1798.4668.65301.5Italy-0.91.4-2.0-2.0</p><p>1AustraliaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).3.5092.0624.2032.9653.8642.8112.744.167-0.21.8Germany-0.41.4-1.0-1.0</p><p>1BrazilGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).4.3081.312.6581.1475.7163.1583.7545.4175.81.83.5Japan-0.81.70.00.0</p><p>1CanadaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).5.2331.7842.9251.8813.122.8753.112.7130.6-1.21.6France-0.12.11.01.0</p><p>1ChinaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).8.48.39.11010.110.411.611.996.78United States-0.52.51.51.5</p><p>1FranceGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).3.911.8541.0271.0872.471.8962.1712.1730.8-1.90.7United Kingdom0.22.72.02.0</p><p>1GermanyGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).3.2241.1510.006-0.2311.1760.7522.9792.5111.3-2.50.1Canada0.33.033</p><p>1IndiaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).5.6893.8864.5556.8577.8859.139.8159.3377.35.16.5Mexico1.23.03.53.5</p><p>1IndonesiaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).5.353.6434.4994.785.0315.6935.516.3163.54Australia0.83.34.04.0</p><p>1ItalyGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).3.6931.8180.454-0.0171.5320.5541.8411.457-0.6-2.1-0.1Brazil3.73.44.34.3</p><p>1JapanGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).2.860.1840.2621.4142.7441.9342.4242.08-0.3-2.60.6Argentina0.83.55.05.0</p><p>1KoreaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).8.4863.8376.973.0974.734.1985.1344.973-44.2Spain-0.23.65.55.5</p><p>1MexicoGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).6.602-0.1570.8271.6843.9963.134.9063.1991.8-0.32.1Saudi Arabia2.33.86.06.0</p><p>1RussiaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).105.14.77.37.26.47.48.16.2-0.71.3South Africa2.44.36.56.5</p><p>1Saudi ArabiaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).4.8650.5470.1287.6595.2685.5533.0263.5220.83.7Indonesia3.85.17.07.0</p><p>1South AfricaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).4.1552.7353.6683.124.8645.0015.3885.121.33.5Korea0.15.27.57.5</p><p>1SpainGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).5.0533.6452.7043.0983.2673.6153.8873.6641.2-1.7-0.1Turkey1.05.28.08.0</p><p>1TurkeyGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).6.774-5.6976.1645.2659.3638.4026.8934.621-1.53.5Russia2.37.09.09.0</p><p>1United KingdomGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).3.9152.4622.0972.8182.7582.0582.8383.0260.7-1.61.6India6.37.110.010.0</p><p>1United StatesGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).3.660.7511.5992.513.6372.9392.7792.0281.1-2.80.2China7.910.012.012.0</p><p>Afghanistan, Rep. of.Gross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).n/an/an/a15.128.80716.0998.1811.488Country2008-20102000-2007Country2006-20072009</p><p>AlbaniaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).7.374.235.7755.715.8035.4456Argentina0.83.52.8Argentina8.55950-2.5-2.5</p><p>AlgeriaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).2.152.74.76.95.25.124.6Australia0.83.32.5Australia3.4535-0.2-1.0-1.0</p><p>AngolaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).3.0123.14214.5323.30811.18320.61318.56321.13Brazil2.73.40.8Brazil4.58551.80.00.0</p><p>Antigua and BarbudaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).3.2681.5352.0134.3125.2225.47112.2266.114Canada0.23.02.8Canada2.9115-1.21.01.0</p><p>ArmeniaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).69.613.214.04110.46814.01313.313.8China7.410.02.6China11.756.71.51.5</p><p>AustriaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).3.6510.521.6470.8012.5452.8743.3743.065France-0.62.12.7France2.172-1.92.02.0</p><p>AzerbaijanGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).6.2276.4868.13710.47810.4124.26930.5523.383Germany-1.21.42.6Germany2.745-2.533</p><p>Bahamas, TheGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).1.9030.8052.30.981.2732.4533.42.8India5.87.11.3India9.5765.13.53.5</p><p>BahrainGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).5.234.6185.1937.2455.6447.8536.5465.994Indonesia3.85.11.4Indonesia5.9133.54.04.0</p><p>BangladeshGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).5.64.8344.8455.7766.1086.3026.5256.316Italy-1.11.42.5Italy1.649-2.14.34.3</p><p>BarbadosGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).2.263-2.5770.6891.9514.7964.3213.3343.254Japan-1.01.72.7Japan2.252-2.65.05.0</p><p>BelarusGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).5.854.7075.0457.0411.43211.459.9988.158Korea0.15.25.1Korea5.0535-45.55.5</p><p>BelgiumGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).3.850.9141.3740.9712.7152.0142.9282.847Mexico0.93.02.1Mexico4.0525-0.36.06.0</p><p>BelizeGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).13.034.955.099.334.633.084.6551.2Russia0.37.06.7Russia7.75-0.76.56.5</p><p>BeninGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).4.8626.1964.4653.9273.1052.9433.7574.648Saudi Arabia2.33.81.6Saudi Arabia3.2740.87.07.0</p><p>BhutanGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).7.2046.78510.9127.2136.8427.028.79517.945South Africa2.44.31.9South Africa5.2541.37.57.5</p><p>BoliviaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).2.5081.6842.4862.714.174.44.84.6Spain-0.93.64.5Spain3.7755-1.78.08.0</p><p>Bosnia and HerzegovinaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).5.2113.6314.9573.5056.3123.9226.8896.838Turkey1.05.24.2Turkey5.757-1.59.09.0</p><p>BotswanaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).8.3954.685.336.3596.6044.6533.4385.73United Kingdom0.02.72.7United Kingdom2.932-1.610.010.0</p><p>Brunei DarussalamGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).2.8532.7453.8722.9030.5040.3884.40.6United States-1.32.53.8United States2.4035-2.812.012.0</p><p>BulgariaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).5.3914.0664.485.0096.6416.2416.3236.158</p><p>Burkina FasoGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).1.8466.654.7017.2864.6347.1045.5053.569</p><p>BurundiGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).-0.8572.0564.447-1.2244.8340.9075.1263.575</p><p>CambodiaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).8.7678.16.68.50910.313.310.76710.2</p><p>CameroonGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).4.154.5144.0094.0313.7022.2973.2223.5</p><p>Cape VerdeGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).7.2676.1385.2834.6834.286.52210.8046.942</p><p>Central African RepublicGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).1.8320.3-0.6-7.612.444.204</p><p>ChadGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).-0.8811.6588.49114.72233.6297.9350.1520.182</p><p>ChileGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).4.4633.5272.1593.9776.0435.5534.3425.096</p><p>ColombiaGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).2.9252.1812.4594.6124.6645.7216.7797.728</p><p>ComorosGross domestic product, constant pricesAnnual percent changeSee notes for: Gross domestic product, constant prices (National currency).1.4173.3294.152.474-0.2394.231.2420.492</p><p>Congo, Democratic Republic ofGross domesti...</p></li></ul>

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